Evening Star

What is an 'Evening Star'

An evening star is a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics: the first bar is a large white candlestick located within an uptrend; the middle bar is a small-bodied candle, red or white, that closes above the first white bar; and, the last bar is a large red candle that opens below the middle candle and closes near the center of the first bar's body. This pattern is used by traders as an early indication the uptrend is about to reverse.

BREAKING DOWN 'Evening Star'

There are two different sides of stock analysis: fundamental and technical. Fundamental analysts rely on company performance, including trends in sales and net income, to provide insights about the direction of stock prices. Technical analysts rely on price patterns to provide insights about the direction of stock prices. One tool technical analysts use to help identify patterns is the candlestick chart. Charts provide an illustration of price action that gives traders the ability to identity trade pattern opportunities visually. Some of these opportunities are bullish, or buying opportunities, while others are bearish, representing selling opportunities.

Bearish Reversals

There are many different bearish candlestick patterns including the bearish harami, the dark cloud cover, the shooting star and the bearish engulfing. One of the most popular reversal bearish patterns is referred to as the evening star formation.

Evening star formations can be useful in determining trend changes, particularly when used in conjunction with other indicators. Many traders use price oscillators and trendlines to confirm this candlestick pattern.

The Evening Star

A candlestick requires a certain amount of information about a stock. You need to know the open, high, low and close price for the stock over the time period you want to analyze. Each candlestick consists of a candle and two wicks. The length of the candle is a function of price high and lows within the given time period. A long candle indicates a large change in price, while a short candle indicates a small change in price. In other words, long candlestick bodies are indicative of intense buying or selling pressure, depending on the direction of the trend. At the same time, short candlesticks are indicative of little price movement.

The evening star is a candlestick pattern containing two long candles and one short candle. The first candle in the pattern is a long bullish candle, indicating a long move up. The second candlestick in the pattern is a short candlestick indicating price consolidation and indecision. In other words, the trend that created the first long, bullish candlestick is losing momentum. The final candlestick is a long bearish candlestick gaping lower than the previous candlestick, indicating a confirmation of the reversal and the beginning of a new trend down.